FATCA, FBAR & PFIC Compliance

Three separate foreign reporting regimes with three different thresholds, separated here instead of blended together, because most guidance treats them as one obligation and leaves filers guessing which form actually applies to them.

Which Foreign Reporting Forms Apply to You

FBAR, FATCA, and PFIC reporting get discussed together so often that people assume filing one covers the others. They are three separate requirements, filed in different places, triggered at different dollar amounts.

• FBAR is FinCEN Form 114, filed electronically with the Treasury Department's Financial Crimes Enforcement Network, separately from your tax return
• FATCA reporting for individuals is Form 8938, attached to your federal income tax return
• PFIC reporting is Form 8621, also filed with your return, generally one form per fund per year

Filing one does not satisfy another. The same foreign brokerage account can appear on all three forms in the same year for three different reasons. If you are new to any of this, our international and immigration tax services hub outlines where compliance work sits alongside planning and preparation.

What Triggers an FBAR and What Missing It Costs

$10,000. That is the combined value your foreign financial accounts have to exceed, at any point in the calendar year, before an FBAR is required.

The threshold is aggregate rather than per account. Add together the highest balance each of your foreign accounts reached during the year. If that combined figure exceeds $10,000 on even a single day, you file, and you report every account, including the small ones.

Reportable accounts reach further than most people expect:

• Checking, savings, and time deposit accounts at foreign banks
• Brokerage and securities accounts held outside the United States
• Foreign mutual funds and similar pooled funds available to the general public
• Foreign pension and retirement accounts, including Mexican Afore accounts
• Accounts you hold signature authority over without any financial interest, such as a company or family member's account

The FBAR is due April 15, with an automatic extension to October 15 that requires no request. Penalty exposure divides sharply between non-willful and willful violations. The statutory non-willful penalty applies per report rather than per account and is adjusted annually for inflation, while a willful violation exposes the filer to the greater of a fixed statutory amount or half the account balance, with criminal referral also possible. Filing an FBAR creates no tax liability by itself. It is a disclosure.

FATCA Form 8938 Thresholds Depend on Where You Live

Form 8938 covers specified foreign financial assets, a broader category than the FBAR reaches, and its thresholds shift based on filing status and whether your tax home sits inside or outside the United States.

Living in the United States:

• Unmarried or married filing separately: more than $50,000 on the last day of the tax year, or more than $75,000 at any point during it
• Married filing jointly: more than $100,000 on the last day of the tax year, or more than $150,000 at any point during it

Living abroad:

• Unmarried or married filing separately: more than $200,000 on the last day of the tax year, or more than $300,000 at any point during it
• Married filing jointly: more than $400,000 on the last day of the tax year, or more than $600,000 at any point during it

To use the abroad thresholds you have to meet the IRS presence abroad test, either bona fide residence or physical presence in a foreign country for at least 330 full days during a 12-month period. Immigration status alone does not decide this.

Form 8938 also captures assets the FBAR does not, including foreign stock and securities held directly rather than through an account, interests in foreign entities, and foreign-issued life insurance or annuity contracts with cash value. Directly held foreign real estate is not reportable, though real estate held through a foreign entity is.

Penalties start at $10,000 for failure to file. If the IRS notifies you and 90 days pass without a complete and correct filing, an additional $10,000 accrues for each 30-day period, capped at $50,000. A 40% penalty can apply to understated tax attributable to undisclosed assets, and the statute of limitations on the return stays open until the required information is provided.

When a Foreign Fund Becomes a PFIC on Your Return

PFIC is the rule most cross-border filers have never heard of and most often trip over. A foreign corporation is a passive foreign investment company if 75% or more of its gross income is passive, or if at least 50% of its assets produce passive income. Nearly every foreign mutual fund, ETF, and pooled investment vehicle clears one of those tests.

Ownership brings Form 8621 into play, and the tax treatment falls into one of three regimes.

Section 1291, the default regime

Distributions and gains are treated as excess distributions, allocated back across your holding period, taxed at the highest ordinary rate in effect for each prior year, with an interest charge added. This is the least favorable outcome, and it applies automatically when no election is made.

Qualified electing fund election under Section 1295

You include your share of the fund's income annually and preserve capital gain treatment on sale, avoiding the interest charge. It requires a PFIC Annual Information Statement from the fund, which many foreign funds do not produce.

Mark-to-market election under Section 1296

Available only for marketable stock. You recognize unrealized gains each year as ordinary income and step outside the interest charge regime.

A narrow de minimis exception can relieve the filing requirement. If the aggregate value of your PFIC stock at year end is $25,000 or less, or $50,000 or less on a joint return, and you received no distributions, recognized no gain on a disposition, and have no election in force, the reporting for that fund may not be required. A $5,000 threshold applies to certain indirectly held PFIC stock. The exception disappears the moment a distribution or a sale enters the picture.

One downstream consequence is worth knowing. Under Section 6501(c)(8), when a required Form 8621 goes unfiled, the three-year statute of limitations does not begin running, and the return stays open on more than just the PFIC items.

Common Triggers Clients Rarely See Coming

All three regimes are written broadly and apply to accounts and funds anywhere in the world. In practice the triggers cluster in a few familiar places, and foreign retirement and investment accounts produce some of the clearest examples.

• Afore retirement accounts are named in IRS FBAR guidance as reportable foreign financial accounts, and the Siefore funds holding the balance raise PFIC questions that call for analysis rather than assumption
• Mexican mutual funds and local investment funds, often purchased through a Mexican bank, are common PFIC candidates
• Peso-denominated bank and brokerage accounts opened for convenience push people past the FBAR threshold faster than expected, particularly around a property purchase or a severance payment
• Business accounts a client signs on but does not own still create an FBAR obligation through signature authority
• Mexican financial institutions report US account holders under FATCA, so account information often reaches the IRS before the filer has addressed it

Whether Mexico's mandatory retirement funds should be treated as PFICs at all is genuinely unsettled. Practitioner groups have petitioned the IRS for an exemption, arguing that participation is compulsory and the returns are already taxed in Mexico, and no exemption has been granted. We take the conservative path, document the analysis, and flag the uncertainty rather than presenting a settled answer where none exists.

If your situation also involves Mexican property, an RFC, or IMSS, our US-Mexico cross-border tax guide covers those mechanics in depth.

If You Are Already Behind on These Filings

Most people who find this page are not asking a hypothetical question. They have held an account in Mexico or elsewhere for years and have just realized it should have been reported.

Coming forward voluntarily is a materially different position than being found. The IRS maintains procedures for filers who missed FBARs but reported the related income, and separate streamlined procedures for filers who also under-reported income and can certify the failure was not willful. Which path fits depends on the facts, including what was reported, how many years remain open, and whether the IRS has already made contact.

We start by building the picture: which accounts existed, what balances they held, what was reported, and what was not. Then we recommend a path. Nothing gets filed on your behalf before you understand both the exposure and the options.

Compliance Questions We Hear Most

Find Out Which Forms Actually Apply to You

Bring your account statements, your fund holdings, and the years you are unsure about. We will tell you which of the three regimes you fall under, what the thresholds mean for your specific numbers, and what a clean filing position looks like, in English or Spanish. For clients with holdings beyond Mexico, our expat and foreign investment tax consulting covers the same ground internationally.